Gold News

London Gold Price Slips Near $1700 as Scotia Shuts Shop, Covid Sinks China Demand, Moscow Won't Buy

GOLD PRICES flirted again with $1700 per ounce in London trade Wednesday, edging back to what was a new 8-year high when first reached a fortnight ago as world stock markets extended their rally from the Covid Crisis crash.
 
Edging above mid-April's rebound high, the MSCI World Index has now recovered half of last month's 35% plunge.
 
Major government bond prices also rose, edging long-term interest rates back down to this month's new record lows ahead of today's monetary policy decision from the US Federal Reserve, already cutting overnight Dollar rates back to zero and increasing its asset purchases by more than $2.3 trillion to offset the impact of the economic shutdown
 
Chart of US Fed assets vs. S&P500 stock index. Source: St.Louis Fed
 
Back in the bullion market, Reuters meantime reported that Canada's Scotiabank is finally set to quit the physical metals business, more than 2 years after it tried and failed to find a buyer for its Scotia Mocatta division.
 
Already down to 15 staff from the previous 100-person headcount, Scotia's precious and industrial metals team remain London market-makers, with its accounts at other bullion dealers and the Bank of England continuing to enable its role as one of the City's five gold clearing banks through the LPMCL.
 
Scotia's precious metals business will apparently close by 2021. Unlike fellow London bullion market makers J.P.Morgan and HSBC, it hasn't added any kilobars or London Good Delivery 400-ounce bars to the stockpiles of bullion it holds near New York following the CME's launch of a new gold contract – aimed at easing tight supplies of its standard 100-ounce bars – amid the current Coronavirus fractures in global gold trading.
 
June futures contracts on New York's Comex exchange today traded at a $14 premium over spot bullion quotes in London, the world's central storage and trading hub.
 
Down sharply from mid-March's sudden spike to $100 above spot on the front-month contract, that Comex premium remains 3 times wider than typical location spread between New York and London.
 
Shanghai discounts widened meantime, offering bullion $48 per ounce cheaper than London quotes as the China Gold Association – the industry's communist regime-approved body in the world's No.1 gold mining and consuming nation – said output fell 10.9% while household demand sank by 48.2% in January to March compared with the first quarter of 2019.
 
"Since the outbreak of the epidemic," says the CGA, "strict preventative measures have been adopted nationwide, exacerbating the impact of rising gold prices and greatly affecting the demand for jewelry and gold bars."
 
Meantime in India – where the economic lockdown means spring-wedding season gold demand has collapsed – consumers are increasingly pledging gold to raise bank loans, boosting a sector hit by concerns over bad debts in 2019.
 
Indian households may hold 25,000 tonnes of gold jewelry, bullion and coin according to World Gold Council estimates. Equal to 1 ounce in every 8 ever mined in history, that stockpile is likely to see heavy profit-taking by cash-strapped households as India's lockdown restriction are eased.
 
"Gold loan is one of the easiest loans available for short-term needs while lenders are going cautious on other loan products. Six-month gold loans are mostly in demand," the Economic Times quotes K.Paul Thomas at ESAF Small Finance Bank.
 
Non-bank finance corporations dominate the sector, but "With many NBFCs facing liquidity challenges, lending will be further constrained and gold loans may then become the fallback option for borrowers denied access to the regular channels," agrees V.P.Nandakumar, managing director of Manappuram Finance.
 
Some demand is coming through, however, with digital payments platforms offering gold-linked accounts reporting solid business over last weekend's Akshaya Tritiya festival.
 
Also on the demand side Wednesday, Russia's central bank confirmed to Reuters today a letter sent to commercial bank bosses in the No.3 gold-mining nation, stating that Moscow "does not see it expedient at the current time to resume regular purchases of gold in the domestic market."
 
Over the 5 years starting 2014, when international sanctions against Russia blocked much of its gold output from reaching the global market, Moscow bought 80% of domestic production.
 
But now holding the 5th largest national gold reserves, Moscow suspended its gold buying last month as the price of crude oil – Russia's No.1 export and a major source of tax revenue – sank to the cheapest since 2002.

Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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